Brazil – A Stumbling Giant

Brazil’s level of instability is hard to exaggerate. Once Latin America’s wunderkind and favourite destination of foreign capital, especially as the 2008 crisis unravelled, the country turns ever more into a basket case. Economic growth went from a staggering 7.5 percent in 2010 to a predicted -0.66 percent in 2015. Inflation spiked from 4.5 percent to a current 12-year high of 8.13 percent. Unemployment stands at 5.9 percent, lower than the 7.6 percent five years ago, but disturbingly higher to the historical low of little more than 4 percent at the end of 2014.

Nevertheless, countries like Ireland, or even Spain, show that such economic trouble is not necessarily a threat to social order. If institutions work and ensure political stability, countries recover, especially if they command a young workforce, trained in one of the best education systems in the region, and vast natural resources.

In the case of Brazil, however, political instability seeps into the system, too. The 2014 World Cup protests anticipated events soon to follow. Triggered by a rise of public transport prices in order to finance the newly built stadiums, these protests revealed a deep distrust against political leaders and economic elites in a substantial part of the population.

Distrust, then, turned into hatred after the World Cup fever ebbed down. By the end of last year a corruption scandal erupted that shocked the country, even as most Brazilians are used to corruption as part of daily life. The scandal pivots around the state-owned Petrobras oil giant. Brazil’s economic elites used the company to funnel funds illegally to political parties in a pay-to-play scheme. President Rousseff stood at the helm of Petrobras from 2003-2010, the exact period when the scheme took hold. Yet, she claims having nothing to do with the corruption, and indeed, not having been aware of any wrong-doing at all. This claim is dangerous as almost no citizen buys it and thus provokes ever more social unrest. The large-scale demonstrations are further fueled by Brazil’s deep-rooted class structure and ideological media, as well as the power of organized crime syndicates, which effectively govern substantial parts of Brazil’s mega-cities like Rio de Janeiro.

Our Analysis
There’s no denying that Brazil’s problems are gigantic and defy any neat categorization of political or economic. Neither are they solely based in domestic problems or the global economy. Brazil, rather, gets something from everything. China’s downturn is surely a significant factor in Brazil’s woes. As its economy cools down, demand for oil falls and the politburo scales back on FDI. This hits Brazil twice; first in the oil sector, and second, the country’s agrobusiness, which produces meat and soy beans for the Chinese market.

Domestically, this downturn has poked the interest of the media in political corruption, and unearthed the Petrobras scandal, which is far from over. Given the country’s class politics and related clandestine networks of the politico-economic elites, it is likely that more wrong-doing comes to light – on both sides of the political spectrum. This will lead to even more social unrest and political instability. President Rousseff, forced from the outset to build unholy alliances, remains entangled in a web of enmity and political favours, but is unlikely to face impeachment (as protesters demanded lately). Rather, her administration will become paralyzed and provide a smoke-screen for continuing corruption.

There is hope for Brazil, though. The country has a quality education system that churns out a well-informed and creative citizenry and young workforce, hungry for consumer goods. The natural resources the country commands have the potential to hedge against future downturns. Even more so, Brazil has shown in the past that it knows how to exploit these resources, lure foreign capital and build a labour market that is able to absorb large numbers of professionals. There is no reason to believe Brazil can’t do it again. Until then, however, things will to get worse.